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AOL buys company that inserts video ads

/ Source: The Associated Press

AOL, signaling the importance online video will play in drawing visitors to its ad-supported Web sites, has purchased a small company that specializes in inserting advertising into video clips.

With the technology from Lightningcast Inc., AOL would be able to run targeted ads within video and even change ads from time to time without replacing the entire video file. Lightningcast's technology also can insert ads into audio clips.

Financial terms of the deal, announced Thursday, were not disclosed.

AOL already has been using Lightningcast's platform since 2002. By acquiring the company, AOL can better integrate sales and operations with, the online ad business AOL bought in June 2004.

"This acquisition will provide a huge infusion of talent, technology and publisher relationships for at a time when streaming video is growing at a blistering pace," Mike Kelly, president of AOL Media Networks, said in a statement.

Last month, AOL won the first Daytime Emmy presented for content delivered via the Internet, cell phones and other small-screen devices. Last July's "Live 8" concert special — delivered in seven separate feeds, all without the meltdowns common with early online video events — was widely seen as a milestone in Internet video.

AOL later launched with Warner Bros. the "In2TV" broadband network featuring free viewing of dozens of old television shows like "Welcome Back Kotter," "Sisters" and "Growing Pains." AOL and Warner Bros. are both units of Time Warner Inc.

And earlier this month, AOL quietly opened its test of UnCut Video, a site where users can share clips they made with camera phones and camcorders, competing with the likes of Google Inc.'s video service and YouTube Inc.

Lightningcast's technology works with all types of video — live, on-demand streaming and downloads.

The development comes as AOL intensifies efforts at driving traffic to free, ad-supported sites to compensate for declines in its traditional business of Internet access subscriptions.

But AOL faces immense competition.

Apple Computer Inc.'s iTunes Music Store and Google Video offer clips for sale, generally $1.99 for an episode of a television show.

CBS Corp. recently launched an ad-supported broadband channel, "innertube," with specially created Web series and material that has already run on television.

The Walt Disney Co.'s ABC is experimenting with making popular shows available for free on its Web site, complete with ads that cannot be skipped.